Albania’s central bank lowered its key interest rate for the first time since June 2018 to lower the cost of new borrowing and the cost of servicing existing debt, and to ease the flow of liquidity to businesses and households.
The Bank of Albania’s supervisory council cut the key policy rate in half, or by 50 basis points to 0.50 percent, and the overnight loan rate to 0.9 percent from 1.9 percent while the overnight deposit rate was unchanged at 0.1 percent.
Since October 2011 the central bank has been steadily lowering its policy rate and has now cut it 18 times and by a total of 4.75 percentage points since then. The previous cut came in June 2018 when the rate was cut by 25 points to 1.0 percent.
Albania’s lek has been steadily appreciating against the euro since June 2015 but has declined in the last week in more volatile trading. Today the lek was trading at 124 to the euro, down 1.7 percent this year but up 14.5 percent since highs around 142 in mid-June 2015.
The bank’s governor, Gent Sejko, said today’s rate cut complements earlier measures by the central bank to mitigate the impact of the COVID-19 pandemic on the country’s economic and financial health and should facilitate the smooth functioning of the monetary policy transmission, relieve pressure on economic operators’ finances, and give them more “time, space and breath to cope with the shock.”
While the precautions taken to limit the spread of the virus, such as a temporary reduction in production and employment, will lower the supply of goods and services, social distancing is reducing demand, shrinking sales, revenue and business liquidity, Sejko said in a statement.
Measures taken by the central bank in recent days include guaranteeing the supply of currency and banknotes, ensure the smooth functioning of the electronic payment system, injecting unlimited supply of liquidity into the banking sector and simplifying the process of postponing credit payments to business and households affected by the crises.
“In line with the measures taken by other central banks and depending on the evolution of the situation, the Bank of Albania remains ready to use all operational instruments and regulatory space available to minimize consequences of the pandemic in the Albanian economy and financial system,” Sejko said, adding:
“Our monetary, regulatory and institutional measures will remain in place for as long as necessary.”
Albania halves rate to 0.50%, 1st cut since June 2018